What is Making Tax Digital (MTD)?Understanding HMRC’s new tax system

What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is an HMRC initiative that will revolutionise the UK tax system and ultimately bring an end to self-assessment.

The primary aim of Making Tax Digital is to make tax administration more effective, efficient, and easier for taxpayers through the implementation of a fully digitalised tax system by 2020, whilst also reducing HMRC’s overheads for managing tax affairs.

The changes apply to a wide range of taxpayers, including most businesses, self-employed professionals, and landlords. This ‘new and improved’ tax system will require the majority of business owners to maintain digital records using compatible software.

Frequently asked questions about MTD

What is Making Tax Digital?
What is a digital tax account?
What is the timeline for Making Tax Digital?
Is Making Tax Digital cancelled?
What does the deferral of Making Tax Digital mean for accountants?
What about ‘Digital Record Keeping’?
What does quarterly reporting mean for VAT-registered businesses?
Will ‘Optional Digital Record Keeping’ be widely adopted?
Do accountants need VAT software for Making Tax Digital (MTD)?
Will HMRC continue to provide a VAT solution for MTD?
What are Thomson Reuters’ plans for MTD software?
What about the Making Tax Digital pilot?

What is Making Tax Digital?

Originally announced in the spring 2015 Budget, the MTD initiative will enhance the use of digital data to modernise the UK tax system by 2020, thus making HMRC the most efficient tax authority in the world.

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What is a digital tax account?

HMRC is replacing tax returns with digital tax accounts for millions of businesses and individuals. A digital tax account brings together each taxpayer’s details in one place, just like an online bank account. Taxpayers will be able to view their tax affairs in real time, update their information, register for new services, see at-a-glance how their tax is calculated, and choose payment options.

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What is the timeline for Making Tax Digital?

This is the latest Making Tax Digital timeline, announced by HMRC on 13 July 2017:

From April 2019, quarterly reporting is:

  • Mandatory for VAT for all VAT-registered businesses with a turnover above the VAT registration threshold (£85,000)
  • Optional for VAT-registered businesses with a turnover below the VAT registration threshold (£85,000)

From April 2020 (at the earliest), quarterly reporting is:

  • Mandatory for income tax and corporate tax (as appropriate) for all businesses (including landlords) with a turnover over the VAT registration threshold (£85,000)
  • Optional for businesses (including landlords) with a turnover below the VAT registration threshold (£85,000)
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Is Making Tax Digital cancelled?

The simple answer is no. Making Tax Digital is more than just quarterly reporting. Quarterly reporting was an unpopular aspect of the programme that received the majority of press coverage, but MTD has many benefits to offer accountants and their clients.

As HMRC continue to digitise their tax records, Thomson Reuters customers will be able to use our software to access near-live client data to get a full view of their tax affairs.

Today, submitting a Self Assessment tax return to HMRC is a one-way process with little value beyond compliance.

In the future, MTD will enable a more holistic approach to managing a client’s tax affairs, providing awareness of business events as they happen and offering relevant advice.

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What does the deferral of Making Tax Digital mean for accountants?

There has been concern that quarterly reporting would be a time-consuming struggle, particularly for smaller businesses, accountants, and their clients. Professional bodies, treasury select committees, and other organisations canvassed government to get the timeline for MTD eased, and the deferral has been widely welcomed by the accounting industry.

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What about ‘Digital Record Keeping’?

Only those businesses with an obligation to file quarterly (VAT-registered businesses with a turnover over the threshold) are obliged to keep digital records. For all other businesses, this becomes optional.

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What does quarterly reporting mean for VAT-registered businesses?

It should be noted that the vast majority of VAT-registered businesses already report quarterly for VAT today, and so, other than a technical change in April 2019 to the actual method or reporting, the data reported and frequency of report is unlikely to change for most businesses.

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Will ‘Optional Digital Record Keeping’ be widely adopted?

Only time will tell. There are benefits to digital record keeping vs. poor or paper records, and these have not changed:

  • Collaboration of data between agent and client
  • Robust records vs. no records
  • Efficiency of data transfer between client/agent/HMRC
  • Ability for agent to react to live data and proactively offer advice
  • Efficient processing of data

However, whether agents discuss these benefits with their clients will, initially at least, be up to them. Over time, it is likely that digital record keeping will become ‘the norm’ in many cases.

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Do accountants need VAT software for Making Tax Digital (MTD)?

Currently, the vast majority of accountants use HMRC’s gateway to make the submission for their small clients, which is a relatively simple submission process.

For more complex or larger clients, VAT submission is usually performed by a dedicated product, such as ONESOURCE Indirect Tax, or from a bookkeeping product.

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Will HMRC continue to provide a VAT solution for MTD?

It is unclear whether they intend to continue providing a VAT solution under MTD. For quarterly reporting of income tax, HMRC stated that they were not going to continue to provide their own software.

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What are Thomson Reuters’ plans for MTD software?

We have been working closely with HMRC, industry bodies, and accountants in practice to build the required enhancements into our solutions and incorporate MTD standards and processes. The timeline may have changed, but supporting MTD for larger clients is still mandatory, and so work will continue to develop both our desktop-based Digita suite and our cloud-based Onvio suite for MTD compliance.

The current version of our simple bookkeeping Web and mobile app OnBalance, integrated with Onvio, is still an ideal record-keeping tool for small businesses and property landlords who currently use paper records.

The only change is that the mandatory nature of digital records has disappeared, but the benefits remain.

Integrating our tax products with HMRC’s data is also still a priority. In the future, a role of the accountant will be to monitor and manage the data in a client’s tax account.

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What about the Making Tax Digital pilot?

The pilot continues as before. However, we expect the focus to shift towards VAT, with less immediacy for income tax reporting.

Despite that, we have a waiting list of users wanting to join the pilot. We are in the process of contacting those who have expressed an interest, to see if their need to join the pilot has reduced or postponed.

Apply for the MTD pilot

Next Steps

Software for MTD

Understand our software for Making Tax Digital, which is part of HMRC’s MTD Pilot.

Making Tax Digital software

Join the Pilot

If you are using Digita Personal Tax, you can apply for HMRC’s Pilot Program for Making Tax Digital.

Apply today

Stay Informed

Visit our dedicated resources hub for the latest expert insight and news on Making Tax Digital.

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